Economy

A group representing drivers, Plataforma Nacional, and a newly created farmers’ group, Plataforma 6-F, on Saturday came together to jointly demand action from Spanish and European leaders. They claim rules to protect the environment make them less competitive compared to other regions. Members of both groups, waving Spanish flags, wearing yellow vests and shouting ‘Viva Espana’, gathered in a car park near the Atletico de Madrid stadium and voted in favour of joining forces. They will protest together from now on.”The government is forcing us to take measures that mean products will unfortunately not get to consumers in time. That is why we are calling on politicians to take responsibility and do something,” said Manuel Hernandez, head of the Plataforma Nacional, representing truck drivers. Since Tuesday, Spanish farmers have joined their counterparts from Germany, France, Italy, Portugal and Belgium in daily protests that include blocking several highways and ports. Shortly after the vote, hundreds of protesters walked around the Madrid stadium and then tried to access a main highway via a dirt road. Using force, dozens of police officers managed to stop them from doing so. Later a group of around 200 protesters tried to gather outside the headquarters of Spain’s ruling Socialist party, but a large police presence prevented them from getting too close. Both groups vowed to keep protesting, in Madrid and across the country, until their demands were met. More

“The Israeli economy is strong by all measures. It is capable of sustaining all war efforts, on the front line and home front, until, with God’s help, victory is achieved,” he said in a response to the decision published on Friday. Citing material political and fiscal risks for Israel from its war with the Palestinian militant group Hamas, raging since October, Moody’s cut the country’s rating to “A2”, which is fivenotches above investment grade, while its credit outlook waskept at negative, meaning a further downgrade is possible. The agency said it expects Israel’s debt burden to be “materially higher” than projected before the conflict and defence spending to be nearly double the level of 2022 by the end of this year in its baseline scenario. More

BRUSSELS (Reuters) – EU member states and MEPs struck a preliminary deal on Saturday to ease the bloc’s stringent fiscal rules, giving governments more time to reduce debt as well as incentives to boost public investments in climate, industrial policy and security.The latest revamp of two-decades-old rules known as the Stability and Growth Pact came after some EU countries racked up record high debt as they increased spending to help their economies recover from the pandemic, and as the bloc announced ambitious green, industrial and defence goals.The new rules set minimum deficit and debt reduction targets but these are less ambitious than previous figures.”At a time of significant economic and geopolitical challenge, the new rules will allow us to address today’s new realities and give EU member states clarity and predictability on their fiscal policies for the years ahead,” European Commission Vice-President Valdis Dombrovskis said in a statement.”These rules will improve the sustainability of public finances and promote sustainable growth by incentivising investment and reforms,” he said.Commenting on the deal, MEP Margarida Marques said: “With a case-by-case and medium-term approach, coupled with increased ownership, member states will be better equipped to prevent austerity policies.”The revised rules allow countries with excessive borrowing to reduce their debt on average by 1% per year if it is above 90% of gross domestic product (GDP), and by 0.5% per year on average if the debt pile is between 60% and 90% of GDP.Countries with a deficit above 3% of GDP are required to halve this to 1.5% during periods of growth, creating a safety buffer for tough times ahead.Defence spending will be taken into account when the Commission assesses a country’s high deficit, a consideration triggered by Russia’s invasion of Ukraine.The new rules give countries seven years, up from four previously, to cut debt and deficit starting from 2025.But a member state with excess debt would not be obliged to reduce this to under 60% by the end of the period of the seven years, as long as it is on a plausible downward path.EU countries and European Parliament will need to formally endorse the preliminary deal reached by the negotiators on Saturday before it can take effect next yearThe deal on Saturday was reached by negotiators from the EU Council of Ministers and the European Parliament. They need to formally endorse the preliminary deal before it can take effect next year. More

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GENOA, Italy (Reuters) -The moment is “fast approaching” for the European Central Bank (ECB) to cut interest rates, and timely and gradual steps could help to reduce ensuing volatility on financial markets and in the economy, a top policymaker said on Saturday.Addressing the Assiom Forex meeting in Genoa, ECB Governing Council member Fabio Panetta said the next monetary policy move had to reflect a situation in which disinflation is ongoing and a wage-price spiral unlikely, while rate hikes are proving to have a stronger effect on the economy than in the past.”The time for a reversal of the monetary policy stance is fast approaching,” said Panetta, who became Bank of Italy governor in November after a stint as an ECB executive board member.”We need to consider the pros and cons of cutting interest rates quickly and gradually, as opposed to later and more aggressively, which could increase volatility in financial markets and economic activity,” he added.The European Central Bank held interest rates at a record-high 4% last month and reaffirmed its commitment to fighting inflation even as the time to start easing borrowing costs approaches.The debate is now focussed on whether the ECB will start to cut rates as early as April or opt to delay.”Any speculation on the exact timing of monetary easing would be a sterile exercise and disrespectful to the ECB Governing Council as a collegiate body,” Panetta said.The ECB ended its fastest-ever cycle of rate hikes in September.INFLATION DEBATEIn recent weeks, key policymakers have argued that more evidence that inflation is heading back to target is needed before any rate cuts, despite growing confidence that price pressures are easing.”What should be discussed now are the conditions to start monetary easing, while avoiding risks to price stability and unnecessary damage to the real economy,” Panetta said.Addressing concerns raised by more hawkish policymakers, Panetta said downside risks to inflation expectations had emerged and fears about the ‘last mile problem’ of getting prices down appeared unwarranted, with inflation falling just as fast as it had risen. Also, strong nominal wage growth, which could pose risks, is being offset by the decline in other costs so that firms’ total production costs, the main inflation driver, have stopped increasing.With costs stable and demand weak, businesses are less likely to pass on wage increases to consumers.Panetta played down inflation risks stemming from the Red Sea crisis saying maritime transport accounts only for a small portion of total production costs.”Here too, low demand and high inventories reduce the likelihood of higher transport costs being passed on to prices to a significant extent,” Panetta said, adding an escalation of tensions could not be ruled out. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Italy’s new central bank chief has said the time for cutting interest rates is “fast approaching” and dismissed fears of a fresh inflationary spiral, in the latest sign that pressure is mounting to loosen eurozone monetary policy.Fabio Panetta, who became head of the Banca d’Italia in November, said inflation in the euro area was falling faster than expected, challenges were intensifying for Europe’s already stagnant economy and recent data “clearly point to ongoing disinflation”.“Fears that inflation would stop falling after the initial rapid decline — the ‘last mile problem’ — now appear unwarranted: inflation is falling at the same rate or faster than it has risen,” Panetta said in a speech on Saturday.He added that after the eurozone economy stagnated for five quarters, with the region’s industrial sector “in recession” and bank lending slowing, “disinflation is at an advanced stage and progress towards the 2 per cent target [for inflation] continues to be rapid”.“The time for a reversal of the monetary policy stance is fast approaching,” added Panetta, one of the most dovish voices on the European Central Bank’s rate-setting governing council.Eurozone inflation has declined rapidly from its record high of 10.6 per cent in October 2022, after a surge in energy and food prices faded. In January, annual price growth in the bloc was 2.8 per cent, close to the ECB’s target of 2 per cent.Investors are betting the ECB will start cutting borrowing costs as early as April. But the likelihood of that receded last week after other rate-setters warned there were still risks of fresh pressure on prices.Isabel Schnabel, an ECB executive board member, told the Financial Times: “We must be patient and cautious because we know, also from historical experience, that inflation can flare up again.”ECB chief economist Philip Lane said in a speech that recent data suggest disinflation “may run faster than previously expected”. But he also warned price pressures were expected to pick up as energy inflation stabilises, labour costs rise, demand recovers, and government support measures end.He said: “We need to be further along in the disinflation process before we can be sufficiently confident that inflation will hit the target.”Panetta dismissed fears that rapid wage growth — as workers try to recover the purchasing power they lost in the biggest surge of the cost of living for a generation — could cause a major rebound in inflation.He pointed out that labour accounts for less than 40 per cent of total costs for the average eurozone company and any increase was likely to be offset by falling prices of intermediate goods and energy. “A hypothetical increase in wage growth is currently highly unlikely to trigger a wage-price spiral,” he said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors do not remember the UK’s disastrous ‘mini’ Budget of 2022 with much fondness. But former prime minister Liz Truss’s proposed abolition of the country’s“tourist tax” is one swiftly-ditched policy that spurs a sense of longing.The idea of reinstating VAT-free shopping for international visitors was reversed in the aftermath of the ill-fated Budget. But businesses are hoping for a change of heart. Chancellor Jeremy Hunt has ordered the country’s fiscal watchdog to examine whether the policy’s withdrawal at the turn of 2020/21 has boosted the exchequer’s coffers — or is costing the economy. Independent economic studies suggest the latter. Retail, hospitality and travel companies would all benefit from another volte-face. Under the original policy, shoppers from overseas were eligible to claim VAT refunds unless they were EU residents. Post-Brexit, the government judged it would have to be expanded to EU visitors. But tax-free shopping was scrapped in 2020. A Treasury analysis in 2022 suggested that the policy’s reinstatement would cost £2bn in 2025/26. Yet direct costs only tell half the story.Firstly, the average VAT refund would not be the same for EU and non-EU visitors. Global Blue, the Swiss payments company, has previously estimated the average refund for EU visitors in comparable markets can be up to 63 per cent lower. Fresh analysis must also take account of behavioural effects — the extent to which lower trip costs might encourage more visitors and spending. In 2022, the average tourist would have saved 4.2 per cent on their total spending in the UK had the scheme existed, according to the Centre for Economics and Business Research. It suggests that this could spur a 5.4 per cent increase in overseas tourist numbers. Applied to 2022 numbers, that would mean an additional 1.7mn visitors.Taking such effects, and other factors such as higher taxes from increased tourism employment, additional revenues would have outweighed the cost of VAT refunds by £2bn in 2022, the Cebr estimates.Official data shows that visitor numbers to the UK are recovering post-pandemic. Just under 11mn overseas residents visited the UK in the third quarter of 2023, up 10 per cent year over year. Collectively, they spent £10.1bn — up 11 per cent, although that figure does not factor in inflation.Yet Global Blue says data from retailers that operate across global markets suggests visitor spending in countries such as France — where tax-free shopping remains — recovered much faster than in the UK in 2022.Countries including Italy have a minimum spend before VAT can be reclaimed. That is one way of mitigating the direct impact, although there has been a trend of lowering thresholds. This policy is ripe for re-examination.Lex is the FT’s concise daily investment column. Expert writers in four global financial centres provide informed, timely opinions on capital trends and big businesses. Click to explore More

WASHINGTON (Reuters) – The U.S. Senate on Friday edged closer to passing a bill that includes $95.34 billion in aid for Ukraine, Israel and Taiwan, but faces an uncertain path to becoming law due to Republican opposition in both chambers of Congress.The Senate voted 64-19 to advance the legislation one step along a chain of preliminary votes that could stretch into next week, unless party leaders can reach agreement with rank-and-file lawmakers to fast-track the bill. Lawmakers expect to take the next procedural step in a rare Sunday session.In Friday’s vote, the bill cleared a simple majority threshold with 14 Republicans supporting the measure.Many Republicans want to make a deal with Senate Majority Leader Chuck Schumer, a Democrat, to allow amendments to the legislation in exchange for quicker action. But other Republicans, who reject the bill’s $61 billion in Ukraine aid, have vowed to delay consideration for as long as possible by forcing the Senate to comply with a labyrinth of time-consuming parliamentary rules.Republicans had insisted that Ukraine aid be accompanied by provisions to secure the U.S.-Mexico border, only to reject a bipartisan border agreement once former President Donald Trump, the party’s presidential frontrunner, came out against the deal. Some of those same lawmakers now hope to offer their own amendments to stem the flow of migrants into the United States, while others want to forgo humanitarian assistance provisions and restrict foreign aid to weapons and materiel. If the legislation ultimately passes the Senate, it will face an uncertain future in the Republican-controlled House of Representatives, where Speaker Mike Johnson has indicated he could split the aid into separate bills. “We’ll see what the Senate does,” Johnson told reporters this week. “I’ve made very clear that you have to address these issues on their own merits.”Johnson spoke a day after the House rejected a stand-alone aid bill for Israel. More